Second Thoughts on Estimating Expansionary Fiscal Policy E ffects in the United States

This paper revisits mixed findings of the expansionary fiscal spending effect in the United States. An array of standard Vector-Autoregressive (VAR) models has been implemented to capture inconsistent effects of the fiscal expansion. Findings in this paper consistently reveal that without considering the influence of transfer payments, state and local government spending, and the timing of sample, measuring the effect of expanded government purchases along would result in an upward bias of the comprehensive fiscal stimulus effect. This paper questions the validity of using government purchases alone to precisely evaluate the effect of fiscal expansion.